Rakuten Bank (5838) FY2026 Q3 Earnings Report

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Executive Summary

The key points of this financial results report are increased revenue and profit, primarily driven by the expansion of interest income, as well as improved profit margins. Ordinary revenue (Revenue) increased 39.1% year on year to ¥1,832.63B, while Ordinary Income rose 51.7% to ¥751.06B, achieving a rate of profit growth that exceeded the rate of revenue growth. Net Income attributable to owners of the parent increased 50.9% to ¥531.19B. Interest income, centered on the increase in interest on loans, rose 56.8%, absorbing the 108.9% increase in funding costs.

Factors Affecting Performance

【Revenue】Ordinary revenue increased 39.1% year on year to ¥1,832.63B. The main driver was interest income, which rose 56.8% year on year to ¥1,403.84B. Of this amount, interest on loans was ¥693.04B, up 43.8%, while income from investments, including securities, also contributed to the increase. Fees and commissions income was ¥364.79B, up only 5.9%, indicating that revenue growth is highly dependent on interest income.

【Profit and Loss】Ordinary Income was ¥751.06B, up 51.7% year on year, and the Ordinary Income margin expanded by 342bp to 41.0% from 37.6% in the previous year’s same period. Although general and administrative expenses increased 20.6% to ¥412.84B, the rate of increase was below that of ordinary revenue, resulting in positive operating leverage. Meanwhile, funding costs increased 108.9% to ¥375.41B, and interest on deposits rose 160.5% to ¥261.02B from ¥100.21B in the previous year’s same period, indicating that rising funding costs could affect future net interest margins. Net Income attributable to owners of the parent was ¥531.19B, up 50.9%, reflecting increases in both revenue and profit.

Segment Analysis

The Group has a single reportable segment, Banking Business, and does not disclose performance by segment.

Key Financial Indicators

【Profitability】The Ordinary Income margin was 41.0%, improving by 342bp from 37.6% in the previous year’s same period, while the Net Income margin also rose by 228bp to 29.0% from 26.7%. Basic EPS increased 51.0% to ¥304.41 from ¥201.63 in the previous year’s same period. 【Cash Flow Quality】Comprehensive income was ¥524.87B, slightly below Net Income attributable to owners of the parent of ¥531.19B, due to changes in other comprehensive income, including valuation differences on other securities (-¥267.1B). 【Investment Efficiency】Annualized ROE was 18.7%, supported by both the high Net Income margin and the high financial leverage characteristic of the banking industry. 【Financial Soundness】The Equity Ratio was 2.2%, a low level compared with general operating companies; however, this reflects the structural characteristics of the banking business, in which deposits are recorded as liabilities. Loans were ¥55,549.01B, up +10.1% from the end of the previous year’s same period, and deposits were ¥132,924.33B, up +16.3%, resulting in a low loan-to-deposit ratio of 41.8% and indicating a certain degree of excess liquidity.

Cash Flow Analysis

Because data from the statement of cash flows has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Deposits increased 16.3% from the end of the previous year’s same period to ¥132,924.33B, while loans increased 10.1% to ¥55,549.01B. Deposit growth exceeded loan growth, indicating an expansion of the funding base. Securities increased 21.2% to ¥21,703.73B, while cash and deposits with banks stood at ¥49,215.00B, maintaining a level equivalent to 37.0% of deposits. Borrowings increased only 4.2% to ¥28,661.00B, indicating that the expansion of reliance on market-based funding was limited relative to deposit growth. Retained earnings increased 19.5% to ¥3,250.50B, with accumulated profits for the Q3 cumulative period contributing to the strengthening of equity capital.

Quality of Earnings

The increase in profit during the period was primarily attributable to growth in recurring interest income, and no extraordinary losses were recorded, indicating limited impact from temporary factors. The interest burden coefficient, including non-operating elements, was 1.000, and Pretax Income of ¥751.05B was almost identical to Ordinary Income of ¥751.06B, with an extremely limited difference between the two. However, comprehensive income of ¥524.87B was slightly below Net Income attributable to owners of the parent of ¥531.19B, due to a decline in valuation differences on other securities (-¥267.1B) and deterioration in deferred hedge gains or losses (-¥5.3B). While interest income, up 56.8%, continues to grow faster than funding costs, up 108.9%, earnings quality remains sound. However, this earnings structure is susceptible to trends in market interest rates and deposit rates, and the high dependence on interest income should be noted as a potential source of future earnings volatility.

Earnings Forecasts and Guidance

Progress toward the full-year company forecasts was 72.0% for ordinary revenue, 74.2% for Ordinary Income, and 74.5% for Net Income attributable to owners of the parent, generally in line with the standard Q3 cumulative progress rate of 75%. To achieve the full-year forecasts, Ordinary Income of ¥261.56B and Net Income attributable to owners of the parent of ¥181.47B will be required in Q4 alone. The quarterly average Ordinary Income for the Q3 cumulative period was ¥250.35B, and the required level is slightly above this figure; therefore, maintaining a similar level of earnings power in Q4 is a prerequisite for achieving the plan. The full-year Ordinary Income forecast represents a 41.5% year-on-year increase, suggesting that the growth rate is expected to moderate somewhat from the 51.7% increase recorded for the Q3 cumulative period.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year company dividend forecast is also ¥0 per share, resulting in a Payout Ratio of 0%. The number of treasury shares was only 144 shares, and no large-scale shareholder returns through share repurchases have been identified. Net Income attributable to owners of the parent of ¥531.19B was not allocated to dividends and was instead used to strengthen equity capital through an increase in retained earnings, which rose 19.5% to ¥3,250.50B.

Risk Factors

1. Increasing dependence on interest income: Interest income increased 56.8% year on year, while fees and commissions income increased only 5.9%, indicating that revenue growth is disproportionately dependent on interest income. The impact of market interest rate fluctuations on performance is increasing.

2. Rising deposit funding costs: Interest on deposits increased 160.5% from ¥100.21B in the previous year’s same period to ¥261.02B. Whether yields on earning assets can continue to improve at a pace exceeding the increase in funding costs will be a key determinant of future net interest margins.

3. Securities and credit risk: Securities increased 21.2% to ¥21,703.73B, and loans increased 10.1% to ¥55,549.01B. Trends in future credit costs associated with fluctuations in interest rates and credit spreads, as well as the expansion of loan assets, should be closely monitored.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (bank)

Profitability and Returns

Growth and Capital Efficiency

※Source: Company calculations

Key Takeaways from the Financial Results

1. Ordinary Income increased 51.7% year on year, while Net Income attributable to owners of the parent increased 50.9%, and the Ordinary Income margin expanded by 342bp to 41.0%. Positive operating leverage was evident, with revenue growth of 39.1% exceeding the 20.6% increase in general and administrative expenses.

2. Progress toward the full-year Ordinary Income forecast was 74.2%, almost in line with the standard progress rate of 75%, indicating that the Company is on track to meet its plan. However, the year-on-year growth rate embedded in the full-year forecast, at 41.5%, is below the 51.7% growth rate for the Q3 cumulative period, incorporating a slowdown in revenue growth.

3. The loan-to-deposit ratio was low at 41.8%, with deposit growth of 16.3% exceeding loan growth of 10.1%, indicating excess liquidity in the funding base. Meanwhile, the 160.5% increase in interest on deposits significantly exceeded the 43.8% increase in interest on loans, making the pace of rising funding costs an important focus for future profitability.

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available financial results data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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